Getting the Most from Your Judgment: Understanding Statutory Interest Rates
When obligors default on their credit obligations, creditors will usually attempt to use work-out options before going to court. However, it is sometimes necessary to go through the courts and obtain a judgment to recover money lent to or guaranteed by an obligor. At its most basic level, a judgment is the court’s legal acknowledgment of the existence of the debt. That is, the court has recognized that the obligor owes the debt and does not have any legal defenses to it. The next step is to collect upon that judgment. In doing so, it may be necessary to, among other things, seize assets, sell collateral, require the debtor to complete financial disclosure statements, and garnish wages and accounts. Not surprisingly, these efforts take time and effort. During that time, the judgment collects interest at the rate established by state statutes. To get the most from a judgment, it is important to understand and consider statutory post‑judgment interest, before filing a satisfaction of judgment. Generally, a Court Administrator will not question a creditor’s decision to file a satisfaction of judgment and will permit the debt to be fully satisfied, even if the creditor has not collected the entirety of the judgment, including statutory interest. As a result, it is important for creditors to understand how post‑judgment will accrue in the jurisdiction where litigation is undertaken. States have very different post-judgment interest processes and rates. Likewise, a federal court judgment may accrue interest at a different rate than a judgment that was obtained in state court. In most cases, post‑judgment interest will begin to accrue once judgment has been entered. In Minnesota, the date upon which judgment was entered, as well as the amount of the judgment, determine the applicable post-judgment interest rate. Minnesota Statutes § 549.09 provides the statutory determination for interest accruing on judgments. For judgments entered on or before August 1, 2009, the interest rate is four percent (4%) [1] . For judgments in Minnesota, entered after August 1, 2009, that are in an amount equal to or less than $50,000.00, the interest rate will generally be four percent (4%) [2]. For judgments that are greater than $50,000.00, and entered after August 1, 2009, Minnesota statutes prescribe a ten percent (10%) interest rate. Clearly, it is beneficial for Minnesota creditors who pursue entry of judgment in the range of $50,000.00 to ensure that all pre-judgment interest and allowable costs and expenses are pursued, before entry of judgment, to get the benefit of the ten percent (10%) interest rate. Lenders should ensure that the interest rate applied under the loan documents and on their system is the proper rate. Occasionally, creditors overlook their ability to apply a higher interest rate while a debtor is in default. If that results in the judgment being less than $50,000.00, a creditor can potentially lose thousands of dollars in the collection process, because the judgment is accruing four percent (4%) interest instead of ten percent (10%). This issue is also significant to pursuing the renewal of a judgment. In Minnesota, a judgment will expire after ten (10) years, unless the creditor renews the […]
Read moreProperty Tax Forfeiture
What is Property Tax Forfeiture? Property tax forfeiture is a process where the state takes ownership of real property if property taxes are not paid. When property taxes are not paid in the year due, the taxes become delinquent as of January 1 of the following year. Those holding liens on the property are usually not provided with notice of the property’s delinquent taxes at this time. If the property owner does not contest the delinquent taxes, the district court automatically enters a judgment for forfeiture against the property in May following the delinquent tax year. After judgment is entered against the property, the redemption period commences. Depending on the use, location, and ownership of the property, the redemption period is either one, three, or five years from the date of entry of the judgment. During this redemption period, the owner or anyone having an interest in the property (i.e. a lienholder) can pay the delinquent taxes to avoid tax forfeiture. If the delinquent taxes remain unpaid at the expiration of the redemption period, the property is automatically forfeited to the state where it held by the state in trust for the local taxing districts. The owner may have to option to repurchase the property from the county or the county can sell the property at a public or private auction. However, the owner and lienholders are not entitled to any of the proceeds from the sale. How are Mortgages affected by the Property Tax Forfeiture Process? When a property secured by a mortgage is subsequently forfeited for delinquent property taxes, it is very likely that the mortgage is extinguished. When the mortgage was duly recorded or filed in the county records, and the certificate of expiration of redemption was served upon the mortgagee, the mortgage would be cancelled by operation of the tax forfeiture. As such, it is pertinent that lenders understand the property tax forfeiture process and annually check whether the mortgaged properties are in danger of property forfeiture. Unfortunately, a lender cannot pay only the delinquent year’s property taxes to avoid forfeiture. The county applies any money it receives first to the latest delinquent year and then to each subsequent year. Thus, all delinquent taxes would need to be paid to avoid any forfeiture. What can lenders do to protect themselves? There are several preemptive steps lenders can take to protect themselves from losing their interest in a property due to tax forfeiture. First, the mortgage should contain provisions that all amounts paid by the lender to protect its interests, including payment of property taxes, shall be added to the indebtedness secured by the mortgage. Second, lenders may file their names and current mailing addresses with the county auditor in the county where the land is located to receive notice of delinquent property taxes. The filing fee is $15, and it must be renewed every three years. Finally, lenders can also require that property taxes be included in the mortgage payments and then pay the taxes themselves. With this option, payments for taxes will be escrowed with the lender, and the lender will be in control of […]
Read moreCFPB Finalizes Rules for Small Creditors
Various provisions in the new mortgage rules issued by the Consumer Financial Protection Bureau in January 2013 and May 2013 affected small creditors. Acknowledging that small creditors are a significant part of the mortgage industry, the CFPB has issued a final rule that revises the definition of “small creditor”, along with the definition of “rural areas” under Regulation Z of the Truth in Lending Act (TILA) as a part of the CFPB’s continued monitoring of the mortgage market and consideration of public feedback to the rules. The final rule is effective January 1, 2016 and should boost the number of financial institutions eligible for the special small creditor provisions, among other things. The definition of “small creditor” has been revised to increase the loan origination limit used to determine a creditor’s eligibility for small-creditor status. The limit has been raised from 500 to 2,000 first-lien mortgage loans and also now excludes loans a creditor or its affiliates holds in portfolio. Additionally, a creditor’s affiliates’ assets are now included in calculating whether a creditor is under the $2 billion asset limit (adjusted annually) for small-creditor status. The final rule also expands the definition of “rural area” to include census blocks that may not be in an urban area as defined by the U.S. Census Bureau. The final rule does reduce the time period used to determine whether a creditor is operating predominantly in rural or underserved areas from three calendar years to one calendar year. Accordingly, the rule adds a grace period that would allow a creditor to act as a small creditor or a creditor serving predominantly rural/underserved areas with respect to covered transactions received before April 1 of the current year. The rule also allows small creditors to make balloon-payment qualified mortgage loans and high cost mortgage loans with applications received before April 1, 2016, after which only those small creditors who operate predominantly in rural or underserved areas can do so.
Read moreRenewal of Judgements
Our office often works with our financial institution clients to determine not only how to collect on a judgment, but also when to collect on a judgment. There is no requirement to immediately undergo collections upon judgment entry. Judgments in all states remain valid for a certain amount of time. In Minnesota, a judgment remains valid for 10 years from its original entry date. After all, the fact that a judgment debtor may not have the means to immediately pay a judgment does not necessarily mean the judgment debtor will not be able to pay the judgment at some point in the future. For example, although a judgment debtor may be unemployed at the time of judgment entry, he or she may have future earning potential. In these types of situations, it may be more advantageous to delay collections activities until the judgment debtor is in more stable financial circumstances rather than immediately commence collections action upon entry of judgment. In order to enforce a judgment more than 10 years after its original entry, the judgment creditor must take the appropriate steps to renew the judgment before the 10 year expiration deadline has passed. The proceeding itself is usually fairly simple. Generally, a judgment can be renewed by starting a new lawsuit, based on a claim for failure to pay the judgment. Starting a new lawsuit does require serving a Summons and Complaint on the judgment debtor. As such, judgment creditors should be sure to locate the judgment debtor well before the 10 year anniversary of the entry of the judgment. Defending against the renewal of a judgment is difficult as the only real defense is that the judgment has been paid or partially paid. Once the judgment is effectively renewed, the judgment is good for another 10 year period. Renewing a judgment can be an effective way to keep collections options open in the event a judgment debtor’s financial circumstances improve. For further guidance regarding renewal of judgments or other post-judgment collections advice, please don’t hesitate to contact us.
Read moreThe New CFPB Mortgage Rules: A Summary of What They Are and What They Mean
The Dodd-Frank Wall Street Reform Act and Consumer Protection Act (“Dodd-Frank Act”) amended both the Real Estate Settlement Procedures Act (“RESPA”), which is implemented by Regulation X, and the Truth in Lending Act (“TILA”), which is implemented by Regulation Z, in 2010. Both these Acts address the servicing of mortgage loans. The Consumer Financial Protection Bureau (“CFPB”) is the federal agency responsible for overseeing all federal financial laws that specifically protect consumers, including RESPA and TILA. In January 2013, the CFPB issued rules to implement the Dodd-Frank amendments (the “Mortgage Servicing Rules”) which took effect on January 10, 2014. This article provides a summary of what you, as a mortgage servicer, must do to comply with these rules as they relate to closed-end consumer credit transactions secured by a dwelling (referred to in this article for convenience as “mortgage loans”). Some of these rules only apply to mortgage loans secured by the borrower’s principal residence. We’ve noted the limited applicability of those specific rules in this article. Additionally, the Mortgage Servicing Rules may apply differently to creditors or assignees of consumer mortgage loans or to different types of mortgage loans, such as open-end lines of credit or home equity lines of credit, reverse mortgages, timeshare loans, and fixed-rate loans that have coupon books. This article does not discuss how the Mortgage Servicing Rules apply to those types of mortgage loans. Although this article covers many of the provisions of the Mortgage Servicing Rules, it is not meant to be a comprehensive summary of these rules. We recommend you consult the text of the final rules, in addition to this article, for guidance in specific situations. The rules can be found here and here. I. Small Servicer Exemptions Certain servicers are exempt from some provisions within the Mortgage Servicing Rules as “small servicers.” If you and any affiliates together service 5,000 or fewer mortgage loans per year, you may qualify for these limited exemptions as a small servicer. Your small servicer eligibility is determined each calendar year and is based on the loans you and your affiliates service from January 1 through the remainder of that year. Should you cross the 5,000-loan threshold or take on a loan you do not own or did not originate, the Mortgage Servicing Rules allow you 6 months to comply with any requirements you were previously exempt from as a small servicer. However, if you service any consumer loans which you do not own or did not originate, you do not qualify for the small servicer exemption, no matter how few mortgage loans you service per year. Additionally, there are some provisions which apply to all consumer mortgage servicers, regardless of how few mortgage loans you service per year. II. Fair Debt Collections Practices Act (“FDCPA”) Interplay In addition, compliance with the Mortgage Servicing Rules often intersects with the Fair Debt Collections Practices Act (“FDCPA”), which applies to you if you are a debt collector under the FDCPA. We have also noted throughout Parts One and Two what actions you should take to comply with both your obligations under the Mortgage Servicing Rules, as well […]
Read moreWorking With Borrowers Following Bankruptcy Discharge
Our firm serves as the outside in-house legal counsel for many financial institution clients. In that capacity, we receive calls and emails from our clients every day with questions relating to all aspects of banking. Sometimes, these questions are unique to a specific client, or a certain type of client, or a certain geographic location. From time to time, however, we see trends where the same type of question keeps popping up from our financial institution clients of all sizes and geographic location. The following is one such question: A lender makes a loan to a borrower who executes a promissory note in favor of the lender. The note is secured by a mortgage or deed-of-trust on the borrower’s home. The borrower subsequently files for bankruptcy. For whatever reason, the borrower fails to reaffirm the debt evidenced by the note prior to receiving a bankruptcy discharge. Following discharge, the debt evidenced by the note is extinguished, but the lien of the mortgage or the deed-of-trust remains in place. Despite the failure to reaffirm the debt, the borrower and lender want to enter into some agreement whereby the borrower can continue to make payments to the lender, and the lender agrees to forebear on its right to foreclose the lien of the mortgage or deed-of-trust. Based on the foregoing fact-scenario, what options do the lender and borrower have which would allow the borrower to stay in the home and the lender to continue collecting payments from the borrower? Furthermore, what advantages and risks are associated with each option? The controlling law in this area is unsettled and uncertain. Unfortunately, neither the Bankruptcy Code nor the Bankruptcy Courts have offered a clear solution to this all too common issue. In this article, we discuss three options the lender and borrower may use to attempt to carry out the intent of the parties to have the borrower stay in the home and continue to make post-discharge payments. The first option is for the lender to simply passively allow the borrower to continue to make voluntary payments to the lender and, in exchange, the lender will forbear its right of foreclosure. The second option is for the lender and borrower to enter into a formal written agreement post-discharge (this article will refer to such agreements as “Post-Discharge Agreements”). The third option, which, as best we can tell has never been discussed by the courts, is to have the lender take ownership of the property pursuant to its lien rights and then sell the property back to the borrower. The first and second options may be available to lenders in both first-priority and junior lien positions. The third option is only available to lenders in first-priority lien positions. This article discusses the risks, advantages, and likelihood of enforceability of each option. Before we dive into the various options, we want to first note that the difficulty of this scenario can be avoided by making sure that a proper reaffirmation agreement is signed in the time and manner required by the Bankruptcy Code. Once the lender receives notice that a borrower has filed for bankruptcy, the […]
Read moreImportant Power of Attorney Alert!
Powers of Attorney – New Statutory Short Form Power of Attorney Effective January 1, 2014 This is a follow-up to our Advisor article sent on June 18, 2013, “Powers of Attorney – What You Need to Know About the Current Requirements and Upcoming Changes.” The full article can be found here. The new Statutory Short Form Power of Attorney (“SSF POA”) will be made available January 1, 2014. It’s important to remember that SSF POA’s executed before January 1, 2014, on the 2013 form, will remain valid on and after January 1, 2014, and should be accepted if compliant with all the requirements for SSF POA’s executed prior to January 1, 2014. However, a SSF POA executed after December 31, 2013, on the 2013 version of the SSF POA will not be valid and no additional determination needs to be made beyond determining the improper form was used to refuse acceptance of an SSF POA executed after December 31, 2013 on the 2013 version of the form. As stated in the June Advisor, the changes to the SSF POA do not change the essential purpose and function of the SSF POA, but the changes make it important to closely review a presented SSF POA to determine not only if the proper form was used, but if the form was completed properly.
Read moreLessons from the Past can Protect you in the Future
The past several years can provide valuable lessons to lenders in the unfortunate event that current or new loans end up in foreclosure. A proactive eye towards certain aspects of the lending transaction can provide the key to a successful foreclosure. Therefore, before securing a loan with a mortgage on real property, take into account these considerations and circumstances which may affect the foreclosure process down the road. 1. Marshalling Waiver Clause. Minnesota law requires the sale of separate parcels. The inclusion of a marshalling waiver clause gives the foreclosing lender much more discretion in the foreclosure process, and it allows the lender to foreclose multiple parcels in the same sale, saving costs and expenses while expediting the foreclosure process. 2. Waiver of 12 Month Redemption Period. Under Minnesota law, in certain circumstances, a mortgagor may have a 12 month redemption period. This can be waived when the 12 month redemption period is based upon the property being in agricultural use as of the date of execution of the mortgage. The waiver must be written in a document separate from the mortgage or as a separately executed and acknowledged addendum to the mortgage on a separate page. 3. Waiver of Jury Trial. In Minnesota and Wisconsin, a mortgagor can waive the right to a jury trial within the loan documents. Jury trials are far more expensive and time consuming than bench trials (a trial where the judge determines the final outcome). Eliminating the possibility of a jury trial will expedite the foreclosure process if trial becomes necessary. Make sure the waiver is broad enough to include the waiver of the right to a jury trial on attorneys’ fees claims. 4. Assessment of Tax Classification. It is good practice to investigate the tax classification of potential collateral. When property is classified as agricultural, the foreclosure process can vary. For example, the mortgagor may be able to request pre-foreclosure mediation, the redemption period could be 12 months, and the time period to collect a deficiency from the sale could be shortened. If the property is classified as agricultural, assess whether the property is currently in agricultural use. If not, consider requiring the borrower to petition the county to change the tax classification. 5. Obtain Signatures of All Property Owners. Before executing a mortgage, determine who all the owners of the property are. It is best practice to get all owners to sign the mortgage. When a mortgage is not signed by all the property owners, the mortgage only secures the interest of those signing the mortgage. If foreclosure becomes necessary, the lender can only foreclose on that interest–leaving the successful bidder at the foreclosure sale as a co-owner of the property with the non-signing property owners at the expiration of the redemption period. These interests are much harder to sell post-foreclosure. It is also prudent to determine the marital status of a mortgagor. Under both Minnesota and Wisconsin Law, generally a mortgage on a homestead is deemed invalid if the mortgage is not signed by both spouses. Therefore, lenders are unable to enforce its mortgage against homestead property without the signature of […]
Read moreImportant UCC Alert!
2010 Amendments to the Uniform Commercial Code go into effect Monday, July 1, 2013. We are sending this as a follow-up to our The Advisor article sent on April 16, 2013, “What to Know about Filing UCC Financing Statements under the 2010 Amendments.” The full article can be found here. We received several questions from lenders regarding whether it will be necessary to re-file Financing Statements to comply with the 2010 Amendments. Regarding this, we have the following comments. As long as a Financing Statement was filed in compliance with all statutory requirements in place at the time of filing, the Financing Statement will not be rendered ineffective by virtue of the 2010 Amendments. Thus, Lenders need not re-file prior Financing Statements for the sole purpose of correctly naming the debtor pursuant the 2010 Amendments. However, in entering new loans, lenders should be aware that the same is true for other secured creditors. That means, another creditor could have filed a Financing Statement listing the debtor in a manner that complied with the UCC prior to the 2010 Amendments, but would not comply with the 2010 Amendments. In such cases, the other creditor’s Financing Statement may not be revealed in a search of the debtor under the debtor’s correct name. As such, a lender should always determine the correct name of a debtor, for purposes of filing its own Financing Statement, and also search the debtor using previous names, in order to reveal any other Financing Statements filed prior to the 2010 Amendments. The full and final version of the UCC, incorporating the 2010 Amendments (Minn. Stat. Sections 336.9-101 through 809), can be found here.
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